The Gradison Corporation had the following classes of stock outstanding as of December 31, 2011:
Common stock, $20 par value, 20,000 shares outstanding
Preferred stock, 6 percent, $100 par value, cumulative, 2,000 shares outstanding
No dividends were paid on preferred stock for 2009 and 2010. On December 31, 2011, a total cash dividend of $200,000 was declared. What are the amounts of dividends payable on both the common and preferred stock, respectively?

Question

Quizplus · Accepted Answer

The preferred stock is cumulative, so dividends for 2009, 2010, and 2011 must be paid before common stockholders receive any dividends. The annual preferred dividend is 6% of $100 par value, which is $6 per share. For 2,000 shares, this is $12,000 per year. For three years, the total is $36,000. The remaining $164,000 ($200,000 - $36,000) is payable to common stockholders.

The Gradison Corporation Had the Following Classes of Stock Outstanding